Sarda Energy & Minerals Limited (504614) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Sarda Energy & Minerals Limited Q4 FY '26 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. Parth Chauhan ] from Adfactors PR. Thank you, and over to you, sir.

Good morning, everyone, and thank you for joining us for the Q4 and FY '26 Earnings Conference Call of Sarda Energy & Minerals Limited. We have with us today Mr. Pankaj Sarda, Managing Director; Mr. Manish Sarda, Deputy Managing Director; Mr. Padam Kumar Jain, Director and Chief Financial Officer; and Mr. Nilay Joshi, Executive Director. Before we proceed, I would like to mention that some of the statements made on this call today may be forward-looking in nature and may involve risks and uncertainties that are difficult to predict. Documents related to the company's financial performance have been uploaded on the exchanges and the company's website. I now hand over the call to Mr. Pankaj Sarda for opening remarks. Thank you, and over to you, sir. Thank you.

A very good morning, and thank you everyone, for joining the Q4 and FY '26 earnings call. I hope everyone had an opportunity to review the financial results and investor presentation uploaded on the exchanges and our company website. Over the last 5 years, Sarda Energy has undergone a significant transformation from a midsized cyclical commodity-linked [Technical Difficulty].

Sorry to interrupt, the line for the management dropped, participants please stay connected. Ladies and gentlemen, thank you for your patience we have the line for the management reconnecting. Sir, please, go ahead.

Good morning, and thank you, everyone, for joining the Q4 and FY '26 earnings call. I hope everyone had an opportunity to review the financial results and investor presentation uploaded on the exchanges and our company website. Over the last 5 years, Sarda Energy has undergone a significant transformation from a midsized cyclical commodity-linked metals business to a more diversified and integrated energy and mining business. In FY '21, the company's earnings were largely driven by steel and ferro alloys cycles, with profitability exposed to commodity price volatility and fluctuations in raw material costs. Since then, we have strategically diversified our business through investments across thermal power, hydropower and coal mining. Key milestones in this journey include the acquisition and integration of SKS Power 2x300-megawatt thermal power assets, operationalization of the 113-megawatt hydropower project in Sikkim and commencement and scale-up of coal mining operations at Gare Palma IV/7. These initiatives have materially strengthened our integrated business model and improved earnings visibility. This transformation is reflected in our financial and operating performance. Over FY '21 to FY '26, revenue has doubled at a CAGR of 21% to approximately INR 5,928 crores, EBITDA has tripled at a CAGR of 25% to INR 2,025 crores with 3x jump in profit after tax as well at a CAGR of 24% to INR 1,109 crores. During the same period, our energy capacity has increased nearly fivefold to 929 megawatts, supported by a strong liquidity position, improved credit profile and a net debt-free balance sheet, we believe Sarda Energy is well positioned to deliver long-term sustainable value creation. Against this backdrop, FY '26 was another year of strong operational performance across our energy, mining and metals businesses. In FY '26, the company not only surpassed its INR 2,000 crores EBITDA guidance, but also recently crossed the market capitalization of INR 20,000 crores. The Board has also recommended a record dividend of 200%, subject to shareholders approval. Operationally, FY '26 was a landmark year for the company with several businesses delivering their highest ever production and generations level. I'm happy to report that the company achieved the highest ever generation and sale of thermal and hydro energy during the year despite planned shutdowns, led by the successful integration and scale-up of SKS Power, addition of Rehar Hydro project, capacity and signing of profitable long-term PPAs. The thermal power generation ex-captive reached its highest ever level at 4,155 million units in FY '26 as against 2,238 million units in FY '25, representing a robust growth of 84% year-on-year. Hydropower generation also remained strong during the period with annual generation increasing to a record 661 million units in FY '26 from 508 million units in FY '25, recording a growth of 31% Y-o-Y, supported by the commissioning of 25-megawatt Rehar Hydropower project. Consequently, the Energy segment continues to drive growth with 2/3 of EBITDA being contributed from the segment. Going forward, we will continue to scale up the energy portfolio. An important development during the period was the Honorable Supreme Court dismissing all dissenting appeals filed against the approval of the company's resolution plan for acquisition of SKS Power Generation Chhattisgarh Limited under the IBC process. This paves the way for the company to efficiently double the capacity to 1,200 megawatts by FY '30, supported by strong cash generation and a robust balance sheet. Importantly, for this brownfield expansion, the land, water, grid connectivity, fuel availability, coal handling, railway siding infrastructure, et cetera, is already in place. We have applied for the environment clearance and the same is expected in due course. During the quarter, the company has also approved the acquisition of a majority stake in Adishankar Khuitam Power Private Limited, which holds rights for a 66-megawatt hydropower project in Arunachal Pradesh. Most approvals and critical forest land for the project has already been secured, and we are confident of a successful scale-up of this capacity. Work on the other 3 small hydropower projects in Chhattisgarh, totaling 74 megawatts is progressing as per plan. Within our power portfolio, commissioning of the 50-megawatt captive solar power plant is expected before end of next quarter. The 30-megawatt TG set replacement project is in final stages of its erection. The plant is expected to be commissioned by the end of this quarter, ahead of the earlier targeted completion time line of H1 FY '27. On the mining side, the company received consent to operate from the Chhattisgarh Environment Conservation Board for expansion of production capacity at the Gare Palma IV/7 coal mine from 1.68 million tonnes per annum to 1.8 million tonnes per annum. And the production during FY '26 reached the maximum permissible annual limit of 1.8 million tonnes per annum. Q4 production numbers appear relatively lower due to exhaustion of the approved annual limit. However, this achievement demonstrates the company's strong mining execution capabilities and its ability to efficiently maximize extraction. Development of the Shahpur West high-grade coal mine is progressing as scheduled with commissioning targeted before the end of FY '27. Approval processes for the Gare Palma IV/5, Bartunga and Senduri coal mines are progressing as per plan. Moving on to the metal business. Iron ore pellet production reached a record of 8, 26,293 metric tons in FY '26. Sponge iron production also achieved a new milestone with overall yearly production increasing to 3,45,066 metric tons in FY '26. Further, the HP Wire division achieved record yearly production of 40,425 metric tons in FY '26. Further, the Board approved -- Board has approved the expansion of the iron ore pellet plant capacity at Raipur from 9,00,000 tonnes to 20,00,000 tonnes. The project is estimated to involve a capital outlay of approximately INR 500 crores and is expected to be completed within 2.5 years from commencement. EC for the project is already in place and the DPR is currently under preparation. The stand-alone operating performance in the fourth quarter was impacted by the shutdown of 130-megawatt captive power unit for replacement, which is expected to come into operation by end of this quarter. Despite this, the financial performance improved on account of better market conditions. Price realization in the steel segment improved during the quarter on both Y-o-Y and Q-o-Q basis. However, price realization during FY '26 remained lower compared to FY '25. As part of our sustainability commitment, we have installed Mineral Wool project to utilize the industrial waste of production of usable industrial product. Coming to the financial performance, consolidated revenue for Q4 FY '26 stood at INR 1,258 crores. EBITDA for the quarter stood at INR 352 crores, while PAT for Q4 FY '26 stood at INR 155 crores, an increase of 53% Y-o-Y. As pointed out earlier, performance during the quarter was impacted by certain planned operational shutdowns and seasonality. Steel production was temporarily affected due to the shutdown of 130-megawatt captive power plant unit since December for replacement activities. Additionally, thermal power generation declined year-on-year as one 300-megawatt turbine continued to be under planned maintenance for part of January 2026. Hydropower generation is also impacted because of the seasonal slowdown. For the full year, consolidated total revenue increased 23% Y-o-Y to INR 5,928 crores in FY '26 from INR 4,815 crores in FY '25. EBITDA for FY '26 stood at INR 2,025 crores as compared to INR 1,410 crores in FY '25, representing a growth of 44% Y-o-Y. Profit after tax increased significantly to INR 1,109 crores in FY '26 from INR 702 crores in FY '25, reflecting a strong growth of 58% Y-o-Y. Our balance sheet continued to remain strong with net debt to EBITDA well below 1x and credit rating by CRISIL at AA- with a positive outlook. Consolidated net debt as of 31st March 2026 stood at INR 215 crores as compared to INR 1,566 crores as of 31st March 2025, a significant reduction of over 85%. Consolidated liquidity remains robust at INR 2,380 crores. And on a stand-alone basis, the company continues to remain net cash positive. With that overview, I now hand over to Mr. Manish Sarda to discuss the industry environment and outlook. Over to you, Mr. Manish.

Thank you, Pankaj. Good evening, everyone, and thank you for joining us today. I will briefly touch upon the broader industry environment and the demand outlook across steel, power and related commodities. FY '26 was a defining year for India's industrial and energy sectors, marked by strong domestic demand, improving pricing trends, accelerated infrastructure activity and record quarter. The opening environment across both steel and energy remains stronger compared to previous quarters, supported by policy interventions, rising investments and sustained economic momentum. India's vision of Viksit Bharat 2047 continues to drive a strong structural push towards domestic manufacturing, infrastructure creation and energy security. Increasing investments across semiconductors, electronics, manufacturing, data centers and industrial infrastructure are expected to significantly increase long-term power and resource demand in the country. India's semiconductor ecosystem alone is witnessing a multibillion-dollar investments, supported by strong policy initiatives and localization efforts. At the same time, evolving geopolitical tensions and structural energy supply risks have further strengthened India's focus on Atmanirbhar Bharat and reducing dependence on energy and industrial raw materials. The government of India's emphasis on coal gasification and domestic resource utilization reflects the broader strategic direction. Recently, the government approved INR 37,500 crores incentive scheme to promote coal gasification projects aimed at reducing imports of LNG, methanol, ammonia, fertilizers, while strengthening India's long-term energy security. In the backdrop with our planned capacity expansion across thermal, hydro and renewable power, along with our integrated mining business, we believe SEML is well positioned to benefit from the increasing demand for reliable and competitively priced energy driven by India's manufacturing-led growth trajectory. Given our integrated presence across coal mining, power generation and industrial operations, we believe that the company remains structurally aligned with India's long-term priorities around energy security, manufacturing growth and economic self-reliance. During FY 2026, India stood out positively among global steel markets. Crude steel production in India grew by over 11%, even as China and several other global markets recorded a contraction. While China steel production fell to a 6-year low, its export increased. China also introduced export licensing requirements for a wide range of steel products. Starting in 2026, India's apparent steel demand continued to grow, while exports remained higher than imports for the second consecutive quarter. India steel consumption reached approximately 164 million tonnes, supported by sustained infrastructure spending and steady manufacturing activity. And steel prices, which had reached multiyear low earlier in this year, recovered sharply by around 10% to 15% during quarter 4. Despite the near-term global instability, the long-term outlook for both steel and energy sectors remain highly encouraging, supported by India's infrastructure push, manufacturing growth policy continuity and long-term energy transition goals. Turning to the power sector. Demand has strengthened significantly and recently touched a record peak of 270.8 gigawatt, driven by severe heat waves surpassing the previous peak demand of 250 gigawatt recorded in 2024. During the quarter, power prices on the day ahead of market of the exchange stood at INR 3.75 per unit compared to INR 4.30 per unit in the corresponding period last year and INR 3.33 per unit in the previous quarter. The Indian coal index increased by 8% from March 2025 levels and by 9% from December 2025 levels due to the import supply disruptions arising from the ongoing war situation. Looking ahead, the West Asia crisis has resulted in higher input costs and supply chain disruptions. Inflationary pressures from elevated oil prices, along with their impact on government finances may have implications for Middle East is also expected to impact global economic activities. However, given that India is a largely domestic consumption-driven economy, the impact is expected to be relatively moderate. At SEML, we are entering into the next phase of growth with stronger tailwinds, almost operational momentum and a clear expansion road map. I'm confident that with our planned strategic expansions to quadruple our mining capacity and to double our energy capacity, we are well placed for sustained growth going forward. With that, we can now open the floor for question-and-answer session.

[Operator Instructions] The first question is from the line of Digant Haria from GreenEdge Wealth.

Sir, my first question is that after a long time, we are doing some CapEx in the steel division, in the pellet plant. So are you seeing some changes in terms -- like what has prompted us to do that because we were holding the CapEx in this sector for a long time because it is deeply cyclical. Just some comments here.

Already, environment clearance is in place. Land and water availability is there. And we see a lot of mines opening up in Chhattisgarh in near future. So we think that we'll be ready when these mines open up in the next 2, 2.5 years, we'll be ready with our production.

Okay. So you're saying the supply of iron ore in the catchment areas will be good, so we'll get a chance to process them, right? That is the idea...

Yes. Looks like.

Okay. Okay. Okay, sir. Sir, second question is that in this steel and ferro alloy division, like you think we have really bottomed out and like this year can be a slightly better year because since 4 years, our operating profits in these divisions have actually been declining?

I think they have -- at the current levels, they look to be bottomed out. But it all depends upon the global scenarios as to what happens in the Middle East. If the war again starts and the demand goes down globally, it will have an impact on India as well. But I personally feel these are the current bottom level prices that we are seeing of steel, ferro alloys. And once the war is settled, if there is a peace agreement in place, which is intact and tight, we will see recovery of prices also.

Okay. Okay. But Manish, you don't see much of Chinese dumping these days, like has it declined over the last 2, 3 months because of the currency -- the currency spreads are now really very high between India and China. So in last 2 months...

If you look at the China steel growth, it is contracted. But if you look at the exports, that has increased globally. In India, we have the safeguard measures, and we are seeing that there is less import from China. But globally, if you look at it, they have been exporting.

Okay. Okay. Sir, and last question is on our Power division. Like in our hydropower division, we have done around INR 300 crores of EBITDA, which means that we have done around INR 800 crores of EBITDA in the SKS Power, the thermal power, the independent power production division. So just wanted to check that, is there any efficiency possible here or we have already maxed out because we have produced like INR 411 crores of -- 411 crore units, and we have done INR 800 crores of EBITDA, so roughly like INR 2 per unit kind of EBITDA. So can we -- can this plant increase production or improve EBITDA or we have reached the maximum potential of this plant?

INR 800 crores, how you are saying?

So see, in our segmental results, we say that INR 1,095 crores is the segmental result.

EBITDA.

Yes, EBITDA -- and I'm just subtracting the hydropower division. In the presentation, you have given that hydropower division has done INR 386 crores revenue and 80% EBITDA.

Yes. Just clarifying, the hydropower division number is the EBITDA number that you are referring to. And the number that you are referring to is the EBIT that we disclose, right? So there it's not comparable. That's all I want to clarify.

But to answer your question -- but to answer your second part of the question, yes, in any plant, there is a scope of improvement. We have already improved almost more than INR 140 crores of CapEx in our Binjkot plant till now. And for the next 2 years, we are incurring around INR 150 crores of CapEx. So there could be an improvement in PLF. We are trying our level best that the spares and everything and all the CapExes that was due till now, we are completing those CapExes. And definitely, there is a scope of improving the performance of the plant.

[Operator Instructions] Next question is from the line of Manav Gogia from Yes Securities.

The first question is actually in line with the previous participant. When we look at the pellet plant that you're bringing in, you had mentioned that you see a lot of mines opening up for iron ore in Chhattisgarh. So is there a case where Sarda can also bid for these mines? And does the company see that the pellet plant would be a better play if we have our own iron ore mine?

Yes. These mines are owned by Chhattisgarh Mineral Development Corporation. So I was talking about these mines that are opening up by the state itself. But yes, we will be looking for all the opportunities in this sector if the mine comes up in auction in Chhattisgarh and neighboring states.

Okay. Understood. Just a follow-up because now I think up till last year, we were quite bent on not expanding our steel business further. And now we are seeing some inclination towards it. So is there a possibility whether probably in the future, the company might be looking at demerging the steel and power verticals or from a long time -- long-term strategy point of view? Or how should one look at it?

Yes, P.K ji?

Yes. We are definitely considering the separation of the renewable energy business, not the complete power business. Renewable energy, but that is being explored and we have not yet come to any conclusion that is being examined. But yes, that is on table under consideration.

Okay. So my second question comes for our doubling up of SKS Power capacity. So by when should we expect the Q2, Q3, but it will be this fiscal, right?

No, no. We are taking the environment clearances because the earlier environment clearances had expired. So we are again going to MoEF for the environment clearances after the environment clearances. I think so by 2030, '31, we'll see that project commissioning.

Okay. So this is the calendar year or the fiscal year? Either way, I mean, it's going to be 2031 is what the goal is, right?

Yes.

Got it. So my one last question I had. First of all, how are you looking at the long steel realizations for Q1 as compared to Q4? And when we look at the Q4 realizations, right, so you had guided 12% to 15% jump in the realizations, which is being reflected by the end product. But when it comes to sponge iron and pellets, the sort of a distortion. So I think pellet prices were quite up during the quarter. Just wanted your point of view on how should we see the realizations going ahead, especially for pellets and sponge iron?

Can you please repeat the question?

Yes. Sir, what is your viewpoint on how the realizations are looking for steel business for Q1 as compared to Q4?

Okay. So see, we -- if you witnessed that we are inching closer towards a deal being struck by U.S. and Iran. So once that happens, we are going to see a supposedly strong growth in terms of infrastructure being rebuilt. And I personally feel that the long-term prices for long products will be on an upward trajectory. We have seen flat prices -- we have seen the flat steel prices not dipping down considerably compared to the long product prices. So we will see some growth in the long-term steel pricing of long products.

That is quite helpful. Sir, my question was actually pertaining to also how the realizations are looking in Q1 as well of FY '27.

It's very difficult to predict in such a volatile market. It's very difficult to predict the exact numbers.

No, no. Understood, sir.

In fact, to answer your question a bit, NMDC and OMC both have reduced their prices in iron ore sector because of energy crisis, there is a little bit increase in coal indexes. So the prices have gone up by 7% to 8%, but the iron ore prices have come down. So we think that prices of the end result might also reduce.

Got it. If I may just squeeze one last question into this. If you refer to Slide #13, which is the sales trend for this particular quarter. And if I look at the domestic coal sales volumes, I think the numbers are reflecting the same month as it was in the Q3 PPT. So would it be possible if you could give me the FY '26 number for whatever the sales were for domestic coal, total sales for FY '26?

What is reflected in domestic sales will be there in the presentation also, 150.

Yes. But sir, 9 months, I mean, if you look at the Q3 presentation, the number is the same...

Realization price?

No, not the realization, but the sales trend, Slide #13, the domestic coal sales for FY '26 is at 150. That was the same number in Q3.

So domestic coal, to give you an answer, we are selling very less coal in the market because most of the coal is captively consumed.

[Operator Instructions] Next question is from the line of Rajesh Bhandari from NAKODA ENGINEERS.

[Foreign Language].

[Foreign Language].

Are we thinking of any coal gasification, sir?

So in any point in time, we keep evaluating various project, so. But, yes, nothing...

The coal auctions, Bhandariji, the government is coming up with coal mines auctions for particularly coal gasification itself, we are evaluating the opportunity, how -- and then we'll take a call.